Some left out of state muni sale
Some investors who were hoping to grab lucrative tax-free yields on California municipal bonds went home empty-handed Tuesday, or with fewer bonds than they had ordered.
The state said its sale of $1.75 billion in general obligation bonds attracted $4.3 billion in orders, with a record $1.56 billion of that coming from individual investors.
That allowed Treasurer Bill Lockyer to trim the yields on the bonds from what the state had expected to pay Monday morning, before orders poured in, said spokesman Tom Dresslar in Sacramento.
Some buyers then dropped out as the yields failed to meet their expectations, he said.
The state’s bond offering, one of its periodic sales to raise money for voter-approved infrastructure projects, followed a sharp jump in interest rates on municipal bonds nationwide in February.
Amid a sinking economy, investors and lenders in recent months have grown fearful about extending credit to many borrowers. That has driven up yields on bonds of all kinds, except for U.S. Treasury issues.
But by late last week, with long-term muni bond yields at their highest levels since 2004, many investment pros were advising clients to jump in.
That helped California, which sold bonds in maturities from one year to 30 years.
On Monday, the state was expecting to pay an annualized tax-free yield of about 3.85% on five-year bonds. The final yield was 3.7%. The yield on the 28-year issue in the offering was reduced from a preliminary 5.63% to 5.39%.
Still, the state paid much higher rates than it did at its last general-obligation bond sale, in November. The five-year bond in that deal paid 3.52%; the longest-term issues all paid less than 5%.
Interest on California municipal bonds is exempt from state and federal income tax for state residents.
Although California went ahead with its sale, a number of other borrowers -- including Houston’s school district and Hennepin County, Minn. -- pulled planned offerings Tuesday, citing high rates.
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